A group of 22 Senators are calling on Wall Street regulators to finalize a forceful version of the Volcker Rule by this summer.  In a letter to 5 federal agencies on Thursday, the Senators look for the regulators to adopt a final rule that's free from loopholes and concessions to Wall Street.  Such a request runs counter to  an aggressive campaign by the industry calling on regulators to delay the adoption of the rule so that they can take a deliberate and tempered approach in drafting the rule's terms and conditions.

[C-I Note: The greatest concern among regulators and industry members is that wrong or incorrect analysis can increase the risk of unintended consequences of the Volcker Rule.  This would arise if regulators are not given adequate time to fully plot out probable scenarios - first within their own organizations, and then in a shared context with all Regulators, as a unified group.

That sounds easier than it really is.  Presently, each regulator is struggling with significant splits - i.e., differences of opinion - among its staff and members firms.  Who's right and who's wrong, and which presumptions are misguided?  Until we have answers to those questions, the country runs the risk of exposing the markets, market participants and customers to unintended consequences that can lead to significant loss that, in the end, might undo the positives that the government seeks to achieve.

In order to get it right - or as close to right, as humanly possible - Regulators, and not politicians, should be the ones who dictate when it's time to adopt the final rule - so long as their intentions are genuine and they establish effective and expedient game plans for carrying out their analyses - including appropriate feedback - and allow adequate time to properly draft the language of the rules.  The last thing we need is for a "slip of the pen" to undermine a well-intended provision.

Again, it's certain that any final version of the Volcker Rule will have shortcomings and will require edits and re-writes.  That's why it's critical to minimize the risk that such shortcomings or deficiencies is kept to acceptable levels.

Remember - we'll never know the full impact of the rules until they actually go into effect and the markets play out all of the scenarios.]

The formal comment period on the Volcker Rule closed in February, several months after regulators introduced a rough draft of the overhaul. Regulators writing the rule – the Federal Reserve, the SEC, the FDIC, the CFTC, and the Office of the Comptroller of the Currency - were flooded with comment letters, particularly at the comment deadline date from banks like Goldman Sachs and other critics of the crackdown. The critics center their complaints on the imprecise nature of proprietary trading. The line can be blurred between proprietary trading and legitimate market-making, a practice in which banks hold securities with the intent of selling them to a customer. Wall Street says that companies and the securities markets rely on banks to hold large inventories of bonds so that investors can buy and sell them easily. In the end, there needs to be compromise or consensus, with rules being neither "too tepid,” as the politicians are apt to say, nor too restrictive on market participants so as to alter the behavior of these participants, and in turn, change the way the securities and/or derivatives are traded. For further details, go to:  [Dealbook, 4/26/12].